By Taylor Williams
An attractive, successful woman walks into a bar and posts up. Within minutes, multiple men have approached her, offering to buy her a drink. And while she doesn’t really need the freebie, who can blame her for accepting it? After all, nothing’s more American than having a little extra icing on your cake.
To analogize this scenario to commercial real estate, think of Texas as the woman and the burgeoning semiconductor industry as the free drinks. The state’s economy was doing just fine without the mega-boost from manufacturing initiatives stemming from the 2022 CHIPS and Science Act, which has resulted in tens of billions of dollars in capital investment for North and Central Texas. But with a well-deserved reputation for welcoming businesses of all types, Texas wouldn’t be Texas if it didn’t court and embrace these manufacturers in these areas, which for many years were predominantly rural communities.
Semiconductors, or computer chips, are essential elements of virtually all electronic and computing devices, including electric vehicles, phones, tablets, TVs, home appliances, solar panels and video game consoles. The CHIPS and Science Act laid the framework for the country to gain market share in terms of manufacturing these components, with the Biden administration proclaiming a goal of having the United States produce 20 percent of the world’s leading-edge semiconductors by 2030.
The period during which the bill was conceived, drafted and signed into law coincided with massive global supply chain disruption from COVID-19, as did the November 2021 announcement of Samsung’s decision to invest $17 billion in a new semiconductor plant in the northeastern Austin suburb of Taylor.
While cars, computers and medical devices rolled off American assembly lines with minimal interruption, these devices could not be brought to market without semiconductors to connect and activate their internal circuitry. Reliance on foreign production of these components created major stalls in delivery of these goods to consumers. The Biden administration moved to change that with the act, which officially went into law in August 2022 and authorized some $280 billion in federal funds to promote domestic manufacturing of these critical pieces of hardware.
As the bill was making its way through Congress, its passing all but assured, Texas Instruments (TI) announced a major expansion of its existing facility in Sherman, about 50 miles north of Dallas. Not to be outdone by an American manufacturer, Taiwanese chipmaker GlobalWafers followed suit with its own expansion announcement via its subsidiary, GlobiTech, which first came to Sherman in 1999. Together, the projects represent tens of billions in capital investment and thousands of new, high-paying jobs for a part of North Texas that was already starting to see phenomenal growth.
The Samsung, TI and GlobiTech projects aren’t the only Texas facilities benefiting from the government prioritizing domestic production of semiconductors — although the South Korean electronics giant did just get approved for an additional $6.4 billion in funding for its Austin-area facilities under the act. Even more recently, EFC Gases & Advanced Materials announced a $210 million semiconductor manufacturing project in McGregor, a city located about 15 miles south of Waco.
The facility will be situated within McGregor Industrial Park, which is also home to a development and testing facility for SpaceX, the rocket and spacecraft company owned by Tesla CEO Elon Musk. The eccentric billionaire and evolving social media personality recently validated the state economy when he announced he would move the headquarters operations of both SpaceX and X, formerly Twitter, out of California and into Texas.
In announcing the initiative, metro Boston-based EFC provided some larger statistics on the extent to which Texas is benefiting from the CHIPS and Science Act. Citing data from the Semiconductor Industry Association, EFC stated that since the passing of the act, 83 semiconductor projects valued at roughly $447 billion have been announced.
Of that total capital investment, $88 billion has been concentrated in Texas. The Texas share of the pie — 19.7 percent — is jaw-dropping on the surface, but not so shocking when you consider that the core inputs of abundant land, labor and cheap power exist in droves in the Lone Star State.
Questions of Timing
The real estate impacts of Samsung’s Taylor plant, which is expected to be at least partially operational by the end of the year, have been taking shape since the project was announced. Yet with nearly three years having passed since then, enough time has elapsed such that certain ancillary and supportive projects are moving from vision to reality. Just ask the city.
In the past few months alone, multiple large-scale projects related to the Taylor plant have entered mainstream media coverage thanks to official agreements with public-sector entities. Incorporating significant taxpayer subsidies into these projects marks a sort of unofficial validation that they’re actually going to happen.
Take iMarket America, a supplier of industrial raw materials and products whose parent company, like Samsung, is South Korean. According to the Austin Business Journal (ABJ), iMarket America signed a memorandum of understanding with the City of Taylor in 2023 and pitched a plan to develop a 212-acre campus near the Samsung plant. Though legally nonbinding, the agreement appears to have done its job, and the company is indeed committing to the region, as further evidenced by the opening of a U.S. headquarters office in nearby Round Rock.
More recently, the Austin-American Statesman and other local media outlets reported that another South Korean materials manufacturer, Soulbrain, would invest $175 million in a new facility in Taylor. Citing a press release from the City of Taylor, the newspaper also reported that the plant will span about 60,000 square feet and produce phosphorus gas, which is used as an “etching agent” in semiconductor manufacturing. Anyone who knows what that means without looking it up should be on Jeopardy.
And finally, in early August, multiple local publications including ABJ, Taylor Press and Community Impact Newspaper reported that the Taylor City Council had approved a proposal and economic development agreement for a $225 million data center project. These groups reported that the project would be developed and operated by Austin-based BPP Projects, and that the site comprised 52 acres of city-owned land. Construction could begin as early as next summer.
As these examples illustrate, the full-scale ramifications of large-scale manufacturing projects on real estate activity — changes in land values, absorption of industrial space, spurring of new residential development — take time to fully observe and appreciate. But brokers who are active in North and Central Texas and have previously worked with landlords and tenants that serve these manufacturers have some idea of what to expect when it comes to timelines. And brokers’ ability to win the ancillary business that accompanies these projects can sometimes come down to timing.
“With these projects, people in the know are often trying to posture before they’re even announced,” says Brad Bailey, senior vice president and head of capital markets at CBRE’s Austin office. “There are a lot of people in the communities who are privy to these announcements.”
“Usually the word gets out before the official announcement comes out,” Bailey continues. “If you’ve started to work on assets or are trying to position yourself in the marketplace when the announcement hits, you’re probably a little late. Not entirely too late, but for most positions and people, the bets are already on the table.”
In other cases, however, local municipal leaders are bound by nondisclosure agreements (NDAs), preventing them from communicating details about the project to the real estate community. It therefore falls to the manufacturers themselves to leak information about the project that can theoretically create competition among vendors to serve the mother plant.
“When these large companies want to create a competitive landscape or let their vendors and suppliers know about activity, they have internal calls, so the real estate community usually finds out when everyone else does,” says Ace Schlameus, senior managing director at JLL’s Austin office. “These larger groups will do national searches for space, so as brokers, you figure it out in that way and hope your area is involved. But the industry takes these NDAs very seriously, and no group wants to ruin a relationship.”
Land Prices Shift
Sources say that when a formal announcement is issued, the most immediate market reaction tends to center around land grabs.
Landowners may work to get their parcels rezoned to support industrial use and contact appraisers in preparation of marketing their tracts for sale. Investors may make personal visits to sites (more on that later) and enlist brokers’ services to obtain basic market information on a preliminary basis. But no matter the move, values of well-located tracts in the affected areas tend to experience some short-term appreciation.
“Once the project is announced, there’s a pretty immediate pop in land values, maybe as much as 25 to 50 percent in some cases,” says Logan Reichle, senior vice president at CBRE’s Austin office. “A lot of times these mega-projects are in more rural areas because of how big they are; the company needs the land to build massive projects and campuses. So all of the surrounding land prices, if the infrastructure is in place, receive an immediate pop.”
“From there, it takes a little longer to field the subcontractors and for contractors to come around and see the demand associated with that pop — maybe one to three years,” Reichle continues. “Land-grab investors, on the other hand, can act much more instantaneously because that [process] involves putting product under contract and capitalizing the tracts.”
Reichle stresses that the one-to-three-year timeline is hypothetical and can vary from project to project. But sources agree that deals and price bumps for land are among the common denominators.
“When the announcement is made, there is definitely a bit of excitement and land rush in some respects; everyone is trying to figure out where the project will go, and the areas surrounding those plants get picked apart because that’s where these groups want to be,” agrees Schlameus.
“There could be other areas within a certain proximity that may potentially have better labor and won’t necessarily cause competition between the client and vendor or supplier,” he adds. “So you see more inquiries on land, and pricing can go up in the surrounding areas. Landowners are aware and get engaged in marketing. Then developers come, so all parties, including users are pretty engaged at that point.”
It’s during those times that brokers can showcase their value to both landlords and tenants looking to enter the market. Schlameus says that underwriting represents a key means of doing so during this phase.
“From a developer’s standpoint, we as brokers assist from soup to nuts,” he says. “We look at what existing tenants are currently paying, what tenants are circling the market and what their requirements are so we know where the market is headed in terms of rent.”
“We can also help design buildings for developers to maximize efficiencies and the attractiveness of the site, as well as help them understand what rental rates they can achieve and what the buildings are worth,” he continues. “We consider everything from the original site plan design to how we can deliver specific tenant requirements to how we can lease up most efficiently at a certain rate.”
Once the post-announcement frenzy has subsided and actual construction of these mega-projects gets rolling, the surrounding landscape can start to look very different, Bailey says.
“In the case of Samsung and Taylor, the plant announcement was made, and now that construction is ongoing, we’ve seen a bit of a boom out there,” he says. “But they basically had to build a mini-city on the property itself with food and temporary housing — basically mobile homes for workforce housing. And we expect to see a secondary wave of activity when the plant opens.”
As principal and managing broker at Preston Bend Commercial Real Estate, a brokerage firm based in Sherman, Randy Jay has seen his market grow steadily over the past decade as the general growth patterns of the Dallas-Fort Worth metroplex have spurred northward migration and development.
Since the TI and GlobiTech announcements came out, Jay has struggled to pinpoint just how much of the Sherman area’s growth has been strictly attributable to those projects relative to the larger wave of expansion hitting North Texas as a whole. But the changes in land values during the past decade or so — for sites both proximate and removed from the mega-projects — attest to just how much the city of 44,000 people is booming.
“Seven to eight years ago, raw unimproved farmland went for maybe $5,000 per acre; today it’s more like $30,000 per acre,” Jay says. “And while it’s tough to distinguish between general growth and that which is tied to the manufacturing facilities and to quantify their impact, it’s fair to say that those [manufacturing projects] pushed some deals over the edge. Investors were already excited about this market before the announcements; after the announcements were made, those projects were full-go.”
Jay cites projects like Preston Harbor, the $6 billion, 3,100-acre master-planned development in Denison that is being led by David Craig, as an example of a deal made that much easier by the manufacturing expansions in Sherman. A predominantly residential community on Lake Texoma, Preston Harbor required extensive infrastructural development to be undertaken — infrastructure that could be equally critical for industrial users and developers looking to support TI and GlobiTech.
Hard Rock International’s new hotel and residential community on the Oklahoma side of Lake Texoma is another example of a project that was underway before the semiconductor announcements broke. Jay believes that although the scope of impact of this project remains to be seen, the manufacturing deals have buoyed investors’ confidence in the long-term success of the venture.
And the runway for more development and investment activity that is padded and safeguarded by chip manufacturing is not about to run out. In mid-August, the Biden administration announced that it had signed a memorandum of terms that would provide TI with an additional $1.6 billion in funding under the provisions of the CHIPS act. In addition to supporting manufacturing activity at TI’s Sherman campus, the Dallas-based tech giant will also use the funds to develop a new plant in Lehi, Utah. In announcing the deal, the administration pegged TI’s total commitment to chip manufacturing in Texas and Utah at about $18 billion, inclusive of the creation of 2,000 full-time permanent manufacturing jobs of thousands more temporary construction jobs.
Boots on the Ground
Sources agree that as investors are snatching up land for new buildings to support the mother plant and various vendors are looking at sites, it’s crucial to provide these groups with a firsthand view of the area, including the master site itself. Jay, who has been involved in multiple deals for vendors to the new TI and GlobiTech facilities, has witnessed this dynamic play out in multiple capacities.
Representing landlords, he negotiated leases over the past couple years for one company that cleans various semiconductor components and for another that creates purified water for the chip manufacturing process. With the latter transaction, the company already had a presence in McKinney, which Jay says helped the deal proceed a bit more seamlessly. But regardless, it’s crucial for these businesses — and any out-of-state developers looking to provide space for them — to tour the area firsthand.
“It’s really a requirement in every deal and a priority for every sophisticated tenant,” Jay says. “You have to get boots on the ground and drive the area and see the sites of the manufacturers and new roads with new home developments. It’s exciting for both tenants and developers to see that growth and understand the scale. And it’s tough to really fathom the size of these complexes without actually seeing them; phone calls don’t do them justice.”
Jay also says that for certain vendors that handle distribution and serve as direct liaisons between the lead manufacturer and the end user, touring the area firsthand reinforces to these groups the importance of proximity to the mother plant. His deal with the first parts-cleaning company illustrated this principle in action.
“Getting people onsite, driving and feeling the travel times, understanding what fuel costs and what site accessibility looks like — it’s beyond important,” he says. “With the parts-cleaning deal, the search started broadly — within a 60-mile radius — but that got restricted down as they came to understand that 30 miles can still be a problem in DFW traffic. The company realized that if they had an emergency product pickup for a customer, they needed to be closer. If they weren’t, it opened the door for a competitor.”
Reichle of CBRE offers a similar anecdote that attests to the importance of touring sites firsthand, especially for investors or tenants that lack familiarity with the area in question.
In this case, the deal involved a 1031 exchange investor and a single-tenant, net-leased retail building in Taylor. The building was occupied by Advance Auto Parts and was being marketed for sale. Although the investor had some experience with owning and operating in Central Texas, he was not familiar with the Taylor submarket and needed some local insight to convince him to pull the trigger.
“The buyer was initially confused as to why he should target the outskirts of Austin for his investment,” Reichle recalls. “He was hesitant, but we got him on a plane to come out and take a look. As we drove, he was skeptical about where we were going since there’s a lot of fields between there and Austin — maybe 10 miles of suburbia and farmland.”
“That kind of investment for developers requires vision; you have to build it or invest in it before the big projects come,” he continues. “So we showed him Samsung’s site and some news stories about it and broke down some of their plans. Four years later, as Samsung nears completion, the investor is very happy. But he was nervous and skeptical at the beginning about investing in a small town outside of Austin and betting on what was coming.”